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Market Segmentation and Targeting: Broad vs. Deep

US Foodservice Market Segmentation and Targeting Example

What’s the target market for your organization?  How important is understanding the overall market, compared with understanding a smaller niche in depth? In market segmentation and targeting, there’s often a tension between broadening the scope or choosing a deeper focus.

The Insight to Action team was asked by a food manufacturer to develop an innovation strategy for the next three to five years. The organization is already established in several segments of the foodservice market, including:

  • supermarket foodservice
  • K-12 education
  • convenience stores
  • recreation
  • lodging
Market Segmentation and Targeting: Broad vs. Deep

Outlining a Market Segmentation and Targeting Project in the Vast US Foodservice Industry

The foodservice industry is made up of more than twenty distinct markets, and one approach would be to “cover the waterfront,” with a higher-level understanding of each of these market opportunities, and then to dive deeper. Developing this understanding would require secondary research, expert and customer interviews, and quantitative surveys. We asked the company to reflect whether the broad approach would be the most helpful, or whether a focused targeting of the market segment that currently drove 70% of their profit would be a better use of time.

Top 6 US Foodservice Segments Account for $152B in Purchases

To illustrate the point, take a look at the US foodservice market in 2020, according to Technomic’s middle case projections for manufacturer shipments.  There are many large segments:

  1. QSRs (quick service restaurants) top the list in manufacturer shipments at over $63 billion in purchases
  2. full service casual dining follows at an estimated $32 billion in purchases
  3. supermarket foodservice at $16 billion
  4. fast casual at $15 billion
  5. healthcare at $13 billion
  6. K-12 at $13 billion  
Market Segmentation and Targeting: Broad vs. Deep

In the Pandemic Aftermath, Careful Market Segmentation and Targeting are Crucial

In 2020, of course, US foodservice has experienced tumultuous times during the pandemic and is expected to shrink. This consideration makes market segmentation and targeting all the more crucial for suppliers. Depending on the market segment, the Technomic estimated real growth rate at a middle case scenario ranges from a reduction of 1-21%, and an average drop of 7%.  QSRs for instance, are projected to fare relatively well, with a 3% drop, given their greater ability to offer drive through and pickup options. Supermarket foodservice and healthcare are also expected to experience 2-3% reductions. Full service restaurants are expected to fare worse given dine in issues (11-13% real drop), and fine dining, lodging and recreation are expected to see 17-21% reductions.  All of these estimates can be considered relative, rather than absolute.

Market Segmentation and Targeting: Broad vs. Deep

Conclusion: Focused Segment Targeting Wins this Round

Given the complexity of this market, and the differing outlook, reconsidering which areas to focus on is more important than ever.  In the case of the food manufacturer we worked with, they elected to follow a two-phased approach. In the near term, they prioritized developing innovation opportunities for the segment that drove disproportionate profit.  That segment is also faring relatively well at this time. Longer term, they decided to explore the broad market landscape and ultimately prioritize three additional segments for growth based on the assessment.

The Insight to Action team’s market segmentation expertise helps companies focus their market segmentation. To start a conversation, contact us.